Proposal 3 – Renewable Energy

Proposal 3 would amend the constitution to set Michigan’s renewable energy policy, requiring energy utilities to increase their electricity sales from in-state renewable energy sources to 25 percent by 2025.

The proposal is more of a policy statement than your standard constitutional amendment, which sets specific limitations on governmental power.

“It’s unusual for this type of policy to be inserted into a constitution,” said Troy attorney Anna Maiuri. “It’s something that is generally delegated to state legislatures to figure out.”

In fact, many states’ legislatures have done so, including Michigan. In 2008, the legislature passed our current energy policy requiring utilities to sell 10 percent of its electricity from in-state renewable energy sources by 2015.

But no other state has written its energy policy into its constitution, Maiuri said.

The proposal limits the types of renewable energy allowed to four types: wind, solar, biomass and hydro energy. It requires incremental implementation of renewable energy programs “in a manner that fosters a diversity of energy generation technologies.”

In order to qualify, the electricity sold must be produced in facilities in Michigan, with the exception of two companies near the Wisconsin border in the Upper Peninsula and in southwest Michigan near the Indiana border. The power companies that service those areas, WE Energies (Wisconsin Electric) and Indiana Michigan Power, can use power generated from renewable sources in their retail areas in those states.

“They could buy the energy from other companies, but it does require the energy be produced here in Michigan,” said Grand Rapids attorney Bruce Goodman. “So the idea of this amendment is that you’re going to stimulate the construction of new projects within Michigan.”

Utilities would be limited to only a 1 percent rate increase per year caused by investments made to meet the standard. But once the utility hits the 1 percent threshold, it need not continue to invest in that year.

Proposal 3 supporters argue that the policy will lead to new jobs in Michigan as utilities work to meet the deadline. Section five instructs the Legislature to pass laws “promot[ing] and encourag[ing]” the use of Michigan labor and equipment in the construction of new facilities and conduction of electricity from renewable sources.

Finally, the proposal has a severability clause that would allow the amendment to remain valid should any of part of it be found to violate the U.S. Constitution.

Proposal 3′s lack of flexibility could be an issue

Both Maiuri and Goodman said the proposal’s lack of options beyond the four current renewable standards could be problematic. Because the proposal would write the limitation into the constitution, changing it if a better alternative comes along would likely require another petition drive and vote of the people.

“It narrows the field somewhat and puts it in the constitution,” Maiuri said. “The cons to that are it doesn’t allow for new technology. If something new comes up, it’s not included here. And changing a constitution is a very hard thing, generally.”

But, Goodman said, the inclusion of biomass energy does give utilities some different options to try.

“It covers landfill gas. It covers putting wood into coal-fired boilers. One way to do [produce electricity through biomass resources] is to take all of our coal-fired boilers and have them powered partially by wood,” Goodman explained. “If 20 percent of the fuel is wood, then 20 percent of the electricity coming out would be deemed renewable. It also would allow gasification of agricultural crops, garbage and trees.”

Renewable energy and green energy aren’t the same

Many people consider the terms “renewable energy” and “green energy” to be interchangeable for environmentally safer energy, but they’re not. Biomass options may give utilities options in trying to meet the new standards, but it still involves the burning of fuels, which pollutes the air.

“The pollution control you’d have to put on a wood or garbage burner is a lot the same as you would a coal plant,” Goodman said. “The one difference I’d note is that you don’t have mercury coming out of trees and garbage normally. This bothers some environmental people. They don’t like combustion at all. But the key is that it’s renewable.”

It will likely lead to litigation

Goodman said the implementation of the amendment and the legislatively passed laws it requires will almost certainly lead to future litigation, particularly from section five.

Under Michigan’s current statutory policy, utilities are rewarded for using Michigan-based products and equipment with a renewable energy credit that can be sold. This proposal doesn’t include that incentive, and any incentive the legislature passes is likely to meet scrutiny under federal law.

“This renewable energy credit approach to encourage the use of Michigan products was interesting and unique,” he said. “But if you go too far, you’ll interfere with the interstate Commerce Clause.”

Under the Commerce Clause, a state can’t enact laws that discriminate against goods from another state.

“If you do something that says that Michigan products get a special preference in Michigan, then someone in Ohio is going to sue and say they have solar panels that are just as good as those in Michigan. Why should Michigan solar panels be preferred?”

Other areas ripe for litigation are whether the utilities raised rates beyond the 1 percent cap, and whether the utilities are making an effort at incremental improvements leading up to 2025.

“There are lots of opportunities for lawyers, I guess,” he said.

Will my electric bills go up?

The short answer to the most important question for most voters can only be answered: maybe, perhaps temporarily.

The annual investment utilities are required to make is limited to the amount that would cause them to raise rates by 1 percent. But this shouldn’t be understood as meaning that they are limited to raising rates only 1 percent per year until 2025. It’s only that they can only raise rates up to 1 percent because of their investment in renewable energy.

Because the proposal is so prescriptive and inflexible, it could lead to higher costs as utilities scramble to meet the standards, Maiuri said. She said it’s possible the section two requirement that the energy be produced in Michigan could create limits that would lead to higher rates.

“The arguments are so one-sided on either side that it’s hard to tell really what the truth is on how it’s going to affect the rate,” she said.

“But there does seem to be some provisions in here that make you wonder if [people who claim rates will go up] have a point.”

But, if you believe the utilities’ rate projections that say costs were going up 3 to 5 percent a year over the next five years, the additional 1 percent would be added to that figure, Goodman said.

“To see the number in TV ads that say it will add $160 billion to rate payer bills, what they fail to say is that the utility has already said their bills will already go up $380 billion over that same period.”

But, he said, circumstantial evidence from other states suggests that in the long term, producing electricity from renewable sources could lead to lower bills. Iowa — a state with 21 percent of its energy produced from renewable sources — has energy bills approximately half of what they are in Michigan.

“There may be all kinds of other factors at play, but wouldn’t it be interesting if having 25 percent renewable energy actually lowered our rates? Who would argue against it if that could ever be proven and predicted?”